This year, the 23rd of April was a Thursday, a normal working day for me. I was a little surprised to get a call from my wife to go home for a lunch together, especially on a working day. Being unable to hold the suspense for long I rushed home and was once again taken for a huge six when I saw the splendid traditional meals with all possible curries which ended with my favourite ‘parippu payasam’. She kept me anxious till the time I started leaving for office and broke the suspense in an elegant ‘Cadbury Style’ - ‘Happy Birthday Dear’. OK, enough is enough; it is now time to be formal.
23rd April 2015, the day on which the Institute of Company Secretaries of India notified the milestone Secretarial Standards 1 and 2, the first of its kind in any country in the world, a proud moment to the entire Indian corporate world where everything is now ‘Make in India’.
“Just as modern mass production requires the standardization of commodities, so the social process requires standardization of man, and this standardization is called equality.” Erich Fromm
So, standardisation is all about maintaining uniformity and similar practices. In a business world, such uniformity is inevitable to achieve the ultimate goal of profit maximization. A new manager, supervisor or a worker should not be let to waste effective and productive time to familiarize with a new system, instead should be exposed to a familiar and standardized working atmosphere wherein from the very day one onwards he will be on job.
At a time when we are constantly being told to value the new and the different, it may come as a surprise to learn that the standard, the shared and the common can be strong drivers of transformation. In fact, many of the innovations that have changed the world, including railroads, modern manufacturing and interchangeable parts, money, agriculture, the visual media, the Internet, even language, only succeed because of standardization. Organizations that are looking to transform their operations, their customer experience or even their industries can benefit from incorporating as many types of standard, shared and common features into their efforts as possible.
WHY SECRETARIAL STANDARDS?
The advent of Companies Act, 2013 provided for solutions to so many issues which stood as stumbling blocks in the path of corporate governance and progress. This was, in fact, the need of the hour to replace a law of 1956 to cope with the advancement of technology and global economic scenario where everyone is bothered about growth or decline of stock exchanges and GDP. However, from the practical implementation of the new law, the reality came to light that even the new law is keeping silence or abstruse at many places. There are loopholes which are still to be plugged and vacant areas yet to be filled.
The basic decision making process of any corporate entity is carried out through detailed deliberations by means of various meetings at different levels of management and administration. In a company it is carried out through meetings of Board of Directors, members, class of members, creditors etc. In a corporate set up where the actual business is carried out by a group of executives called ‘Board of Directors’, who are appointed by the owners called ‘Members’, the most crucial element is ‘accountability’. Accountability demands for structured and organized procedures and standard outputs. Hence the need to formulate standardized operating procedures to set the house in order has become inevitable among the corporates too. Hence secretarial standards are a set of procedures and norms mandatorily to be implemented by the prescribed class of companies to ensure accountability towards all the stakeholders.
Formulation of Secretarial standards is a fabulous initiative by ICSI to plug the loopholes and fill the vacant areas of the Act with emphasize on better corporate governance and decision making. It covers the fundamental and vital areas of business to ensure accountability of the business entity towards the stakeholders and in turn towards the country. It is a combination of customary and modern practices of business in collaboration with the state of the art technology within the framework of the law. More focus is given on optimum participation of the stakeholders in decision making and avoidance of suppression of the minority views. The ultimate purpose is to inculcate the elements of transparency and accountability among corporates to protect the interests of all those concerned.
FUNDAMENTALS OF SECRETARIAL STANDARDS
Some of the fundamental purposes for formulating the standards as explained by
Mr. Pavan Kumar Vijay*, FCS, Chairman, Secretarial Standards Board of ICSI are:
- Improvement in quality of secretarial practices followed by companies.
- Furthering the shareholders’ democracy
- Better corporate disclosures
- Better interpretation of laws
- More transparency
- Enhancing Professionalism in corporates
- Reduction in Non-compliances
- Enhance Corporate Culture
- Better corporate governance
- Higher Confidence of JV Partners world-wide
- More recognition to the ICSI and its Members
It is a human tendency to go for shortcuts wherever and whenever possible. When it comes to vital corporate decision making it is quite natural that the beneficiaries may resort to any sort of shortcuts or unethical business practices. There may happen oppression, mismanagement, fraudulent practices, tampering of basic documents, misinterpretation of law, distortion of facts, misleading of authorities, manipulation of resources, financial irregularities and ultimately absolute deception of the stakeholders. The existing practices of fabrication of basic documents like minutes, resolutions, notices, agenda, explanatory statements etc will definitely come to an end with the strict implementation of the standards.
One of my colleagues once discussed with me about a general practice in many companies during AGMs to provide the members with a heavy lunch and valuable gifts so that most of them may leave after that or will be dozing during the afternoon session so that vital and complex items may be passed comfortably. In certain cases a deliberate delay is created in finalization of the agenda points and at the neck of the hour very crucial points are incorporated whereby depriving the concerned persons from taking an informed decision. It is sure that such practices of evading the spirit of law could be nailed by meticulously implementing the standards. The stringent provisions with respect to issue of notice, resolutions, adjournment of meetings, conduct of postal ballots, participation through electronic means, maintenance of minutes, marking of attendance, quorum, distribution of gifts etc will definitely plug the loopholes in the Act.
SALIENT FEATURES OF SS1 AND SS2
SS1 and SS2 cover areas of Board Meeting and General Meeting respectively. As it is not so relevant to discuss the entire standards here, some of the thrust areas of both the standards are mentioned below for a quick reference.
Board Meetings (SS 1)
Notice and Agenda – The Notice shall specify the serial number, day, date, time and full address of the venue of the Meeting. Notice, Agenda and Notes on Agenda shall be sent to Original Director also at the address registered with the company, even if these have been sent to the Alternate Director. Agenda should be sent at least 7 days before the date of Meeting, unless the Articles prescribe a longer period.
Quorum – The quorum for a meeting is 1/3rd of total number of directors or two, whichever is higher, unless articles change this requirement. Directors participating through video conferencing are counted for quorum and also the interested directors after disclosure of their interest.
Minutes - It should be finalized within 15 days from date of conclusion of Meeting of Board/Committee and the draft Minutes thereof shall be circulated to all Board/Committee members for comments. A copy of the signed Minutes certified by the Company Secretary or where there is no Company Secretary, by any Director authorised by the Board shall be circulated to all Directors within 15 days after these are signed. A company may maintain its Minutes in physical or in electronic form with Timestamp.
Attendance Register - Maintenance of separate attendance registers for the Meetings of the Board and Meetings of the Committee has been made mandatory. Every Director, Company Secretary who is in attendance and every invitee who attends a Meeting of the Board or Committee thereof shall sign the attendance register at that Meeting.
Participation Through Video Conference – Participation through video conferencing is permitted except for certain restricted items like approval of annual financial statements, Board’s report, prospectus and matters relating to amalgamation, merger, demerger, acquisition and takeover, unless expressly permitted by Chairman. Similarly, participation through E-mode is not allowed in Meetings of Audit Committee for consideration of annual financial statement, unless expressly permitted by the Chairman.
Independent Directors - To transact urgent business, Notice may be given at shorter period, if at least one Independent Director, if any, shall be present at such Meeting. If no Independent Director is present, decisions taken at such a Meeting shall be circulated to all Directors and finalised only on ratification thereof by at least one Independent Director. If the company has no such director, decisions shall be finalised only on ratification thereof by a majority of Directors of the company, unless such decisions were approved at the Meeting itself by a majority of Directors of the company. Independent Directors shall meet at least once in a calendar year.
General Meetings (Secretarial Standards 2)
Notice - No business shall be transacted at a Meeting if Notice in accordance with this Standard has not been given. No items of business other than those specified in the Notice and those specifically permitted under the Act shall be taken up at the Meeting.
Quorum – The quorum should be available throughout the Meeting
Proxy - If a Proxy is appointed for more than fifty Members, he shall choose any fifty Members and confirm the same to the company before the commencement of specified period for inspection. In case, the Proxy fails to do so, the company shall consider only the first fifty proxies received as valid.
Voting - Every Resolution shall be proposed by a Member and seconded by another Member. Every company, which has provided e-voting facility to its Members, shall also put every Resolution to vote through a ballot process at the Meeting.
Resolutions - A Resolution passed at a Meeting shall not be rescinded otherwise than by a Resolution passed at a subsequent Meeting. Modifications to any Resolution which do not change the purpose of the Resolution materially may be proposed, seconded and adopted by the requisite majority at the Meeting and, thereafter, the modified Resolution shall be duly proposed, seconded and put to vote.
Distribution of Gifts - No gifts, gift coupons, or cash in lieu of gifts shall be distributed to Members at or in connection with the Meeting.
Adjournment - The Chairman may adjourn a Meeting with the consent of the Members, at which a Quorum is present, and shall adjourn a Meeting if so directed by the Members. Meetings shall stand adjourned for want of requisite Quorum. The Chairman may also adjourn a Meeting in the event of disorder or other like causes, when it becomes impossible to conduct the Meeting and complete its business.
Postal Ballot - Every company, except a private company, shall transact items of business as prescribed, only by means of postal ballot instead of transacting such business at a General Meeting.
Minutes - A distinct Minutes Book shall be maintained for Meetings of the Members, creditors and others as may be required under the Act. Minutes may be maintained in electronic form in such manner as prescribed under the Act and as may be decided by the Board. Minutes in electronic form shall be maintained with Timestamp. Minutes Books shall be kept at the Registered Office of the company or at such other place, as may be approved by the Board. Minutes shall contain summary of the opening remarks of the Chairman also.
During a session on ‘Secretarial Standards’ in the recently held National Seminar of ICSI in Trivandrum, I asked a question to CS Lalit Jain, a member of Secretarial Standard Board regarding the future implications of the secretarial standards if the Central Government decides to incorporate these standards into the Act. He responded very positively by mentioning that ICSI would be very happy in such an incidence as it would be a recognition of the efforts of the Institute. He further discussed about the possibilities of introduction of more standards in various other areas as well as additions and alterations to the existing ones.
The standards, however, are likely to face strong opposition from companies concerned over the level of micromanagement as the rules are likely to increase compliance costs even for small companies due to their applicability to all companies incorporated under the Companies Act except ‘one-person company’. The practicing professionals may also find hurdles in strict implementation of the standards as the managements of most of the companies they deal with are illiterate of the standards or reluctant to deviate from their comfortable practices. I hope, the professionals in employment may get some breathing time to convince the top management regarding the gravity of non-compliance.
In any way, the standards will undergo a tremendous transition in the days to come to cope with such resisting factors and also to update in line with the technological advancement and changing global corporate scenario. It is so nice to know that the efforts of our Institute have been appreciated by the international community also. Hence in the coming days, taking inspiration from our experience, so many countries around the world will adopt these standards to ensure better corporate governance and accountability.
In a country where rich are super rich and poor are always below poverty line, the dreams of common man for prosperity and richness are infinite. Each stakeholder maintains high expectations regarding better returns. It is their fundamental and justifiable desire for disciplined corporate governance, ethical practices and due diligence to ensure accountability.
In this scenario, the need for maintaining professional standards is at its peak. The government bears the responsibility to satisfy the stakeholders in and outside the country with professional standards and safe investment avenues. Professional bodies like ICSI and professionals like company secretaries have an integral part to play in the efforts of the government to ensure such an investor friendly atmosphere in our country. Expectations are too high. Hope we all will be able to rise to the expectations.
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